Refinancing Sallie Mae Student Loans - Empowering Your Financial Journey

According to one report, more than $4 billion in student loans were refinanced in 2020. 1 To save money is the main motivation for why so many borrowers want to refinance. Refinancing at a lower rate if you have a loan with a high interest rate can result in cost savings over the course of the loan.

There are pros and cons to refinancing student loans. Saving money is great, but not everyone qualifies, and you risk losing valuable benefits. Let’s examine what refinancing federal and private student loans entails, what to look for, what to think about, and how to actually begin the refinancing process.

Refinancing vs Consolidating Student Loans

Understanding how to refinance versus consolidate your student loans can be confusing:

Consolidation means combining multiple loans into a single one. This often gives you an interest rate that’s an average of the rates of the existing loans (or a rounded-up interest rate). Usually any unpaid interest will capitalize (become part of your principal balance) so you’ll be paying interest on the new, higher balance.

Refinancing means getting a new loan from a private lender that will pay off your existing loans. When you refinance, you’ll have a new interest rate, new terms (including how long you’ll have to pay back the loan), and possibly a new lender. Plus, you’ll make a single payment on the refinanced loans.

Who Can Refinance Their Student Loans?

Even if you’ve already refinanced your federal and private student loans, you might still be able to do so. Since most borrowers who refinance have already graduated from college, there has been sufficient time for interest rates to change. A lender will consider your credit history when evaluating your refinancing request if you have been out of school for a few years.

Refinancing a student loan entails a lender paying off your existing loan balances. You receive a new loan in exchange, possibly with a lower interest rate. You will still have a new loan with your current lender if they are doing the refinancing.

If you extend the term of your loan (how long you’ll be paying it), you may end up paying more over the life of your loan.

Your monthly payment isn’t guaranteed to be lower; the rate you’re offered will depend on your creditworthiness and the interest rate environment.

What Happens When You Refinance a Student Loan?

Refinancing your student loans is essentially the same as applying for a new loan. Many of the same criteria that lenders used to evaluate your initial application for a (private) student loan will be used again, such as these:

How’s your credit? According to some websites, you may need a credit score that’s in the high 600s or even the 700s.2 If not, you may need a cosigner.

How responsible have you been? What’s your record of on-time payments?

What’s your income and your debt-to-income ratio? This is a measure of your ability to take on new debt—the total of your monthly debt divided by your gross monthly income. If you have a high one, it may indicate to a lender that you’re at a higher rate of defaulting on the loan.

Are you a U.S. citizen? With some lenders, if you’re a non-citizen or permanent resident, you may have to add a cosigner.

How much do you have left? If you don’t have a large enough amount of debt, then it might not be worth refinancing; you could save a small amount but applying for a new loan could impact your credit report.

Refinancing private student loans

Refinancing private student loans is possible, either through your original lender (if they provide it) or a different private lender. There are pros and cons to refinancing:

Pro: The most common reason to refinance a private student loan is to save money over the life of your loan, usually through a better interest rate and a different term (length of time you have to pay it back).

Con: A possible downside is whether the money you’ll save will offset any valuable benefits (including discounts) your original lender offered. Also, a longer repayment term may result in your paying more overall.

When choosing whether to refinance, you should take into account both the interest rate and the repayment period.

Refinancing federal student loans

Refinancing private loans as opposed to federal student loans might be a simpler choice. Federal loans offer a number of flexibility and benefits. Therefore, even though you might save money, you must weigh that money against the impact of giving up features and benefits:

Popular forbearance programs, like returning to school, illness, and disability, may be different or not exist with a new lender.

You’ll lose the flexibility to switch to a new repayment plan (like income-driven repayment).

If the government offers a new loan forgiveness program, a refinanced loan (which becomes a private loan) will not be eligible.

While the government does not offer loan refinancing, consolidation is available, and it may help you retain some of your benefits. Check studentaid.gov to find out what’s available for your federal student loans.

Should I Refinance My Student Loans?

Obtaining a better financial deal is the main justification for refinancing. Refinancing might be worth considering if rates have fallen since you took out your loan (or if it appears that they will rise and your variable interest rate will follow suit).

To see if you could get a better deal financially from refinancing your student loans, check out an online student loan refinance calculator from Nitro.

Things to Consider Before Refinancing Student Loans

Are you really saving money? If you’re just paying over a longer term, you may end up paying more over the life of your loans

Will you lose any current student loan benefits, such as repayment options or Public Service Loan Forgiveness?

Will your new loan be considered a student loan or a personal loan? If it’s not a student loan, will you lose out on an interest tax benefit?

Will you have to pay any service fees to refinance your student loans?

Will you lose any discounts that you’ve had with your loan originator?

How to Refinance Student Loans

Following your decision to refinance your debt, you should do the following:

Research the lenders who are highly rated for refinancing. These could include banks, credit unions, and online lenders.

Compare their interest rates to see who offers the best rates and terms.

Be careful to read the fine print: Are there fees? What are your options if you can’t make a payment? Will the rate increase at any time?

Complete your chosen lender’s application, upload documents they require, and, when you’re approved, sign the final documents.

Make your payments to the new lender. Note: Make sure the last payment to your original lender has been made and you don’t owe them any more.

FAQ

Can I transfer my Sallie Mae loans to another lender?

You can refinance your Sallie Mae loans with a different lender, but Sallie Mae does not provide student loan refinancing. The majority of the items featured here are provided by our partners, who pay us.

How do I get rid of my Sallie Mae student loans?

If you want to get rid of Sallie Mae loans, you can do so.
…
Temporarily defer payments

Returning to college.
Attending graduate school.
Starting an internship, clerkship, fellowship, or residency.

Are Sallie Mae student loans eligible for loan forgiveness?

No, Sallie Mae is not participating in the forgiveness program; it only applies to federal student loans. Sallie Mae loans and other private student loans won’t be forgiven under this program. 3.

Can you refinance Sallie Mae loans to federal?

Sallie Mae no longer provides private student loan refinancing, and it also no longer provides student loan consolidation. However, keep in mind that you still have the choice to consolidate through a federal Direct Consolidation Loan if you had federal student loans with Sallie Mae that are now serviced by Navient.